To raise Rs 860 cr, Central Bank plans IL&FS stake sale

Written by Shayan Ghosh | Mumbai | Updated: Aug 2 2014, 05:05am hrs
Public sector lender Central Bank of India hopes to make close to R860 crore from selling around 1 crore shares of Infrastructure Leasing and Financial Services (IL&FS), sources told FE. The bank is in the process of selecting an investment banker, with SBI Capital Markets among those in the fray.

Central Bank of India owns 98.46 lakh shares in the infrastructure development and finance company as at the end of FY13, the latest available data. The companys website said the banks shareholding amounts to 8.34% of the total paid-up capital. The top three shareholders in the company are Life Insurance Corporation (LIC) with 25.34%, ORIX Corporation Japan (23.04%) and Abu Dhabi Investment Authority (11.09%).

We had bought the shares at the face value R10 and, now, the valuation we expect is close to R870 per share, a Central Bank senior official said, adding that the bank planned to sell 4% of its stake to LIC for R581 crore to meet the capital requirement of R2,000 crore. He said the bank will seek R1,500-crore capital infusion from the government and the stake sale could also be looked at when it comes to capital-raising.

With the finance ministry asking banks to explore the possibility of hiving off non-core businesses, including insurance and mutual funds, to raise funds to meet Basel-III capital adequacy norms, Central Bank is also exploring options to sell its stake in Small Industries Development Bank of India (Sidbi) where it holds 2.82%. Basel-III norms on capital adequacy will come into effect from April 2019 and, according to finance minister Arun Jaitley, banks would require R2.4-lakh-crore capital infusion to meet the norms.

Banks had funded a number of companies created by the government and the Reserve Bank of India (RBI). Companies like NSE, UTI, Credit Information Bureau India (Cibil), Clearing Corp of India (CCIL), Stock Holding Corporation of India (SCHIL), Central Depository Services (India) (CDSL), Credit Analysis and Research (Care) and Infrastructure Leasing and Financial Services (IL&FS) were established as financial market intermediaries.

Of banks that had funded these firms, some have already started selling their stakes. For instance, in March, Punjab National Bank and Central Bank of India sold their entire stakes in Cibil to US firm TransUnion.

IDBI Bank also exited SCHIL in March and IDBI, SBI and Canara Bank are also looking to sell their stake in Care Ratings.

In February, a consortium of stakeholders, led by IDBI Bank, rejected the sole bid for their stake in Care. The consortium was disappointed as they were approached by just one buyer and the price offered was lower than the R900 per share anticipated. IDBI Bank holds the largest chunk of shares in Care at 16.62% at the end of FY14.